Correlation Between American States and Vanguard Utilities

Can any of the company-specific risk be diversified away by investing in both American States and Vanguard Utilities at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American States and Vanguard Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American States Water and Vanguard Utilities Index, you can compare the effects of market volatilities on American States and Vanguard Utilities and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American States with a short position of Vanguard Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of American States and Vanguard Utilities.

Diversification Opportunities for American States and Vanguard Utilities

0.66

Correlation Coefficient

American States  Vanguard Utilities

Poor diversification

The 3 months correlation between American and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index and American States is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American States Water are associated (or correlated) with Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of American States i.e., American States and Vanguard Utilities go up and down completely randomly.

Pair Corralation between American States and Vanguard Utilities

Considering the 90-day investment horizon American States is expected to generate 1.57 times less return on investment than Vanguard Utilities. In addition to that, American States is 1.21 times more volatile than Vanguard Utilities Index. It trades about 0.08 of its total potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.15 per unit of volatility. If you would invest  8,204  in Vanguard Utilities Index on August 31, 2024 and sell it today you would earn a total of  773.00  from holding Vanguard Utilities Index or generate 9.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

American States Water  vs.  Vanguard Utilities Index

American States Water

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Vanguard Utilities Index

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American States and Vanguard Utilities

The main advantage of trading using opposite American States and Vanguard Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American States position performs unexpectedly, Vanguard Utilities can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard Utilities will offset losses from the drop in Vanguard Utilities' long position.

The idea behind American States Water and Vanguard Utilities Index pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.